SEAMEC Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Revenue more than doubled, fleet fully deployed: Revenue surged 114% YoY to ₹205 crores as all six vessels worked a combined 452 days, up from 280 days in Q3 FY23 and 249 days in Q2 FY24.
• EBITDA margin hit 46% on high utilization: Margins expanded sharply from 23% YoY and 40% QoQ, driven by full deployment; management expects 35-40% margins to sustain on a yearly basis.
• Vessel consolidation from parent HAL is the structural story: Contracts and assets will migrate to Seamec over 2-3 years as HAL contracts expire, a clean consolidation path management argues is faster than a reverse merger.
• Rate cycle remains a multi-year tailwind: Global OSV rates are on a strong trajectory for the next 3-5 years, barring a black swan event, with contract renewals for Seamec III and Princess expected at higher rates in FY25.
• What to watch next quarter: The pace and pricing of the HAL contract transfers beginning in FY25, the rate uplift achieved on the Seamec III and Princess renewals, and whether the Q4 seasonal peak delivers the implied full-year margin exit.

Fleet Utilization & Quarterly Performance

• Full deployment drove the quarter: All six vessels were on contract during Q3, a sharp reversal from prior quarters where idle time existed; every vessel now holds a contract and deployment is expected to continue.
• Seasonal pattern is pronounced: Q2 is the weakest quarter due to the monsoon, Q1 is moderate, and Q3 and Q4 are the strongest, with Q4 (January-March) being the peak working season for all vessels.
• Contract mix provides visibility: Some vessels operate on 365-day long-term contracts, others on two-year non-monsoon arrangements; almost all vessels have contracts currently, giving strong near-term revenue visibility.
• Debt rose to fund an acquisition: Gross debt increased to ₹232 crores, mainly due to the acquisition of the OSV Sea Diamond during the quarter.
• Other income fluctuates on forex: Other income includes interest and fair value gains on mutual funds; MTM losses arose from a dollar term-loan swap, where rupee-dollar rate movements create volatility.

Naveen Mohta: "I am very happy to state that we are in a very strong position in the Indian market because we have got the biggest fleet of this diving support vessel and all of them are working with ONGC on a long-term kind of contract."

Vessel Consolidation from HAL Offshore

• Clean consolidation, not a merger: Management intends to bring all hard assets and related contracts from parent HAL Offshore into Seamec over the next few years, keeping the EPC business in the parent; the approach is framed as faster than a reverse merger, which would have taken about two years.
• Two HAL O&M contracts expire in 2025-26: These ONGC contracts will be preferred for rebidding under Seamec when they come up for renewal, creating an automatic transfer of the revenue stream.
• One leased HAL asset transfers sooner: Seamec may obtain the right of lease in FY25, with full asset acquisition taking 1.5-2 years, but the right to use the asset and its cash flows comes within this year.
• One owned HAL asset stays separate for now: The HAL-owned offshore asset generating ~\$60,000 per day will begin its contract in FY25, but a decision on acquiring it is deferred to FY27 to preserve tonnage tax benefits.
• All new assets go into Seamec: Going forward, every new vessel the business requires will be taken in Seamec only, ensuring a growing share of the consolidated business sits in the listed entity.
• Management declined to quantify the HAL revenue transfer: When asked for the revenue value of contracts migrating from HAL, management said getting clarity on revenue "may not be the right thing" because pricing will only be known at renewal.

Sunil Gupta: "Even if we would have done a merger or a reverse merger, it would have taken about two years. In this manner, we believe that it is in the interest of the investors where the business will cleanly get consolidated over a period of time under Seamec."

Rate Cycle & Pricing Outlook

• Multi-year rate strength expected: Global OSV rates are on a higher trajectory, and studies by global consulting firms point to sustained strength for the next 3 to 5 years, barring a black swan event like COVID.
• Contract renewals will reprice higher: Seamec III and Princess, currently on EPC basis, come up for renewal with newer rates; management says it is too early to quantify the increase but confirms it will be higher once discussions with potential charterers begin.
• Dollar revenue provides a natural hedge: Revenues are dollar-denominated, and the rupee has historically depreciated 3-4% annually, which supports consolidated profitability over time.
• Domestic contracts offer long tenure: ONGC contracts in Indian waters run 3-5 years, providing stability, while Middle Eastern contracts are shorter but tend to roll over once performance is established.

Naveen Mohta: "Unless there is some kind of black swan event happens, some disruptive thing happens, COVID like thing, then it is a different thing, but otherwise it is going to be a strong price trajectory for next 3 to 5 years."

Fleet Expansion & International Ambitions

• Sea Diamond acquired and immediately contracted: The OSV was purchased for ₹0.7 crore and will be chartered to HAL Offshore under an existing three-year ONGC contract, ensuring immediate deployment.
• Another OSV acquisition is in process: The company is in the process of acquiring a second OSV during the current quarter, following the same model of securing a long-term charter before committing capital.
• International expansion is opportunistic, not budgeted: One vessel currently operates in the Middle East on a three-month contract with extension options; the fleet is so tight that the company cannot meet all demand on the Indian coast, so any international move depends on finding a suitable acquisition target in the region.
• No dedicated OSV budget: The company is not aggressively entering the OSV market; OSVs are small-ticket vessels, and acquisitions will only proceed if a long-term charter is secured, as was done with Sea Diamond and Sea Pearl.
• Vessel replacement looms on the horizon: For the next year, existing ships can continue operating; as new opportunities arise or vessels near expiry, the company will assess the market, where replacement cost is broadly \$50-60 million per ship.

Sector Tailwinds & Competitive Position

• India's oil demand to double by 2045: Projected to rise from 19 to 38 barrels per day, underpinning a structural demand cycle for offshore support vessels.
• State-led capex is a direct catalyst: The budget announced ₹1.2 lakh crore in capital commitments by state and oil PSUs for exploration, refineries, petrochemicals and pipelines, expected to drive revenue growth over the next 5-10 years.
• ONGC's East Coast discovery is a near-term positive: A recent big discovery in the KG basin (block 98/2) is expected to generate additional demand for the company's vessels.
• Dominant position in diving support: Seamec holds the largest fleet of diving support vessels in India, all working with ONGC on long-term contracts, with strong revenue visibility for the next 3-5 years and no expectation of short closure.

Guidance & Commitments

Key Metrics